Remember Fannie Mae? Fannie Mae is a government chartered enterprise (GSE), a private company that buys mortgages from banks and sells them to investors. Fannie Mae is one of several GSEs including Freddy Mac, Ginnie Mae, etc., but it is the most influential and most important of the GSEs as it helps ensure the flow of affordable mortgages to homebuyers. You may also remember that Fannie Mae went bankrupt during the housing crisis and was bailed out with taxpayer money.
Now, a chastened Fannie Mae continues to set policies that have a tremendous impact on the housing market. For instance, if a loan does not meet Fannie Mae criteria, a bank can’t sell the loan to Fannie Mae, making it unlikely the loan will be issued.
Fannie Mae has made a recent decision and is considering others that could have a tremendous impact on community associations. First, in 2014, Fannie Mae disallowed unaffiliated master insurance policies, like those offered by AIAI, an affiliate of Associa. Unaffiliated master policies allow a community association to obtain required master insurance, for common areas, at a substantial discount, in the case of the AIAI product, an average savings of 53% from a stand-alone policy.
This discount comes from the fact that participants in an unaffiliated master policy can get more competitive pricing by pooling with other communities to save on premiums. But, because this type of insurance requires more work by banks and Fannie Mae to verify, Fannie decided it was too much work for them, so they no longer allow such policies. Interestingly, Fannie Mae has indicated that this change was NOT driven by any risk to consumers from such policies, merely the “hassle” to Fannie Mae and bank staff in reviewing such policies. As a result, community associations will have fewer choices and higher costs for master insurance in 2015, solely for Fannie Mae’s convenience.
In 2015 the Nevada Supreme Court issued an important decision on the rights of community associations during a foreclosure for past due assessments. Nevada has a priority lien statute, which requires that up to nine months of past due assessments be paid to the association in a foreclosure prior to any other debts, including the mortgage. During the housing crisis, Nevada was the hardest hit state with more foreclosures per capita than any other state. Banks took possession of many properties and failed to pay assessments to the HOA. When the HOA foreclosed, the banks sued HOAs to avoid paying their fair share of assessments. When HOAs foreclosed, banks did not intervene to protect their mortgage rights and the HOA foreclosure wiped out their mortgages.
As a result of the court case, Banks are pushing Fannie Mae to issue a policy to protect their lien rights in priority lien states (there are about 15 states with such provisions). Fannie is considering its options. If Fannie chooses to take action, it could greatly impact the ability of associations to collect past due assessments. Ironically, if priority lien statutes were duly adopted by state legislatures, Fannie Mae could, without public input, force states to either change these statues or leave homebuyers without access to federally backed mortgages.
Associa will be working hard in 2015 to make sure that associations have the tools needed to make sure their communities are financially viable and assessments can be enforced. Our experts will also work to ensure that boards have choices in obtaining Fannie Mae imposed insurance mandates. Expect more news on this topic at Association Times as the issue moves forward throughout the year.
By Andrew S. Fortin
Senior Vice President External Affairs